Global Insight Perspective | |
Significance | Telenor is the latest foreign telco to enter the Indian market. |
Implications | The Norwegian operator is keen to acquire a strong new growth engine, as it faces slow growth in the Nordic markets and operations in Asia have also been hit by the local economic downturn and high competition. |
Outlook | Although the Indian venture could potentially be a key long-term growth driver for Telenor, the group will face heavy investment requirements and face highly intense competition in the Indian market. |
Telenor today announced that it had entered into a definitive agreement to subscribe to new shares in Unitech Wireless for a consideration equivalent to US$1.07 billion. Subject to regulatory approvals, Telenor will hold a 60% controlling stake in Unitech Wireless. The Indian telecoms start-up has pan-Indian licences for all 22 telecom circles, and plans to launch its services in mid-2009. The company was established in 2007 and has already recruited more than 250 employees. The initial equity injection in Unitech Wireless will be made by Telenor Asia Pte Ltd in four tranches to be completed before the end of September 2009. The investment will be funded through draw-down on existing credit facilities and/or issuance of short-term commercial paper. Telenor intends to secure funding by raising approximately 12 billion Norwegian kroner (US$1.8 billion) through a rights issue in the first quarter 2009. The Norwegian government has stated its willingness, under certain conditions, to put forward a parliamentary proposition to participate for it's pro rata share of the rights issue, said Telenor. "Entering the Indian mobile market gives Telenor a unique possibility to further enhance the Telenor Group's position as one of the leading emerging markets operators, and enables us to take part in the development and growth opportunities in one of the fastest growing telecom market in the world," said Jon Fredrik Baksaas, president and CEO of Telenor, in a company statement.
Meanwhile, Telenor reported its consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 7.346 billion Norwegian kroner in the quarter ending September 2008 from 7.657 billion Norwegian kroner in the year-ago period. EBIDTA for the first nine months of this year dropped to 21.675 billion Norwegian kroner from 22.010 billion Norwegian kroner a year earlier. During the quarter the group's mobile operations added six million subscriptions, reaching a total of 159 million. The Norwegian operator noted that it is experiencing a more turbulent business environment and foresees a period with lower global growth. The revenue growth of the group's operations in Bangladesh, Pakistan, and Thailand, continues to be affected by the unfavourable local macro economic development as well as strong competition. The company's Pakistani operation especially, is experiencing a challenging market, with reduced consumer spending and increased competition as well as an increase in consumer sales tax. The group's Central Eastern European operations however, have maintained strong market positions and delivered a quarter with strong financial results. Kyivstar in Ukraine especially, saw results from its strategy of prioritising high-quality network and services.
Outlook and Implications
The recent poor performance of its Bangladesh, Pakistan and Thailand units have been a key concern for Telenor, as those operations had previously been the group's main growth drivers. Therefore, its foray into India came as no surprise as the group is keen to acquire a new strong growth engine. With a population of approximately 1.2 billion, and a mobile penetration currently at around 26%, there remains significant growth potential of new subscribers in the Indian market. Despite the global economic slowdown, the Indian market continues to experience strong growth; the country added 10.07 million wireless subscribers in September alone, compared with 9.16 million subscribers added in August. The government's issuance of licences to new and smaller players earlier this year has opened up more opportunities for foreign telcos to enter the market through acquisitions of new licensees. Telenor's deal with Unitech follows the earlier acquisition of Shyam Telelink by Russia's Sistema and the investment in Swan Telecom by U.A.E-based Etisalat (see India: 24 September 2008: Etisalat Acquires 45% Stake in Swan Telecom for US$900 mil.). However, to become one of the main players in the Indian market, Unitech Wireless will need to invest substantially to roll out its networks and compete with a dozen of players, some of which are already well established, such as Bharti Airtel, Reliance Communications, and Vodafone Essar. Therefore, although the Indian venture could potentially be a key long-term growth driver, heavy investment requirements may further drag down Telenor's short-term performances.
The following are the aggressive investment plans of some operators.
BSNL is selecting equipment vendors to roll out 93 million GSM lines in a massive deal which could be worth close to US$9 billion.
Tata Teleservices, the second-largest CDMA operator in India, plans to invest about US$2 billion over the next two years to expand its networks, with the bulk of the investment to be spent on rolling out its GSM mobile services.
Shyam Telelink, backed by Russia's Sistema, has pledged up to US$5 billion over the next three years, including a budget of US$1.7 billion for 2009. However, in October Sistema indicated that capex at Shyam Telelink would be reduced by 35% in the fourth quarter of 2008 due to the impact of the global financial crisis.
Videocon-owned Datacom, one of the new pan-India licence-holders, has said it will invest about US$1.5 billion in network roll-out across the country.
Maxis-owned Aircel, currently operating in 10 circles, has received licences for the remaining 13 circles and plans to spend US$4-5 billion in India over the next three years in rolling out its services across the country.
U.A.E.-based Etisalat will be backing the expansion of Swan Telecom, following its acquisition of a 45% stake in the Indian start-up, which holds licences for 13 telecoms service areas.